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How to Assess the Impact of Seasonal Trends on Hotel Valuation

When it comes to the valuation of a hotel, seasonal trends play an important role in the process. The time of the year impacts a hotel’s demand as accommodation status changes drastically. Understanding how to evaluate the seasonal impacts is the key to making informed decisions regardless of whether you are an owner, investor, or buyer.

Learn with us as we will guide you through the importance of seasonal trends on hotel valuation.

Why Does It Matter

Hotels operate in a market where seasons, holidays, demand, and locations fluctuate. The most influential among them is the seasonal trend; for instance, hotels located at the beachfront tend to be more occupied in summer, while those located in Scotland as ski resorts would attract more customers in winter.

Therefore, to assess the seasonal trends and occupancy ratio, investors and owners can understand the impact of seasonal trends on hotel valuation. Some of the key factors that must be considered are:

Fluctuation Of Occupancy Rates

The occupancy rate is the area most affected by seasonal trends. Hotels experience varying levels of guest traffic in different seasons. Based on the location, the hotels would have a soaring number of guests compared to a lesser number in the off-peak season.

Average Daily Rate (ADR)

Seasonal trends affect a hotel’s revenue by impacting the ADR, the daily revenue generated per room. For instance, many hotels increase their rates during peak seasons while offering promotions on these rates during the off-season to attract more guests.

Revenue Per Available Room (RevPAR)

It is a key metric for evaluating the income generation of a hotel and a combination of occupancy rates with ADR. By understanding the RevPar of a hotel’s revenue, it would be easier to understand the hotel’s income revenue and fiscal performance.

Evaluating Cost Expenses

The seasonal trends not only generate income but also impact costs. During peak seasons, hotels may have to hire additional staff, increasing energy usage and spending more on guest services.

How Can You Assess The Impact Of Seasonal Trends

Trends-on-Hotel-Valuation
How to Assess the Impact of Seasonal Trends on Hotel Valuation 1 Land Sterling

Given below are some of the steps that you might take to evaluate the impact of seasonal trends on hotel valuation:

  • Review Hotel’s Data

By reviewing the performance of hotels in previous years, assessing the performance, and monitoring the recurrent patterns of RevPar’s difference, the owners could easily identify the fluctuations and their impact on the hotel’s demand and finances.

  • Predict Future Demands

After monitoring the past patterns, it is easier to plan for the future. The planning phase includes reviewing past experiences and analysing upcoming events like seasonal vacations, holidays, and events. For instance, if a hotel is located in a city hosting an upcoming sports event, then there is a major chance of guests rushing towards the hotel, giving the industry a flourishing chance.

Prepare Detailed Projections

A uniform average is not recommended to be used only for adjusting seasonal trends for valuation while preparing for an upcoming trend. But, it would be more beneficial if the finances were tailored to comply with the requirements. Also, professional hotel valuation experts must be hired to ensure you work in the right direction. 

Long-term VS short-term Impact of Seasonality On Hotel Trends

Seasonal trends have not only short-term impacts on the hotel industry but also long-term impacts.  Hotels located in highly seasonal locations may experience high surges and lowest during the off-season, hence having an unstable income revenue generation. In contrast, those located in a prominent location tend to have higher stability ratios. 

Experienced hoteliers use off-seasons to attract customers by offering discounts and managing events to have a more streamlined and consistent income approach.

Conclusion

Investors, buyers, and owners need to understand the impact of seasonal trends on hotel valuation while deciding to invest in the industry. In the evolving hospitality industry, it is necessary to be aware of these trends and plan accordingly. 

FAQs

What strategies do hoteliers adopt for an off-season income stream?

They arrange events, offer discounts, and promote staycations to local guests, thus keeping their revenue generation active and stable.

Does seasonal trend impact differ between local and international hotels?

Local hotels feel the guests surge more actively than international hotels as they have a steady flow of guests year-round. It helps international hotels maintain a steady income flow compared to the local ones.

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Vinodh Mahadevan MRICS

Vinodh Mahadevan MRICS

Managing Director of Investment Advisory, Land Sterling MENA

Vinodh Mahadevan is the Head of Business & Strategy at Land sterling and a Member of MRICS. With over 15 years of experience in investment advisory, consulting, valuation & advisory services, he has gained extensive exposure to valuation engagements. Vinodh's expertise includes due diligence exercises, appraisals of commercial and residential properties, mortgage and collateral appraisals, retail malls, large-scale industrial parks, hospitality and entertainment projects, and other special use real estate valuations.

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